SlowMist Details Liquid Exploit That Minted 3,998.5 Unbacked LBTC

SlowMist said the Sept. 6 exploit on the Liquid Network was caused by a consensus-layer flaw in Blockstream’s Elements code that enabled about 3,998.5 LBTC to be issued without a corresponding Bitcoin peg-in. In its analysis, the attacker first sent two preparation transactions designed to populate node caches with crafted data, then triggered a rangeproof cache collision in a third transaction. Because different verification inputs could produce the same cache key, nodes treated the event as a cache hit and bypassed cryptographic verification and minimum-value checks, allowing counterfeit LBTC to be accepted as valid. The unbacked LBTC was subsequently redeemed via Liquid’s federated pegout mechanism for real BTC on the Bitcoin mainnet. SlowMist said the incident did not involve stolen signing keys or a compromised pegout authorization key. Elements v23.3.4, released Sept. 8, addressed the issue by adding length prefixes to cache-key construction and introducing an emergency option to disable the rangeproof cache. SlowMist said around 3,400 BTC has since been returned, while 598.5 BTC remained under the attacker’s control at the time of its analysis.